ARCC - Earnings call transcript Q3 2020 | Ares Capital Corporation

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Operator

Good afternoon. Welcome to the Ares Capital Corporation September 30, 2020, Earnings Conference Call. At this time all participants are in a listen-only mode.

As a reminder, this conference is being recorded on Tuesday, October 27, 2020. I will now turn the call over to Mr. of Director Managing Stilmar, investor relations. John

John Stilmar

you. Thank

are impact me the course these changes with in of well use accompanying statements be words any may forward-looking such by important materially The forward-looking and results or such will, market statements reason, and and base portfolio our as past anticipates, some such during of made statements. related business note the believes, as and SEC forward-looking contain the Comments information differ reminders. results. documents for statements to our expects, company's of of and also as market can intends, on and should, COVID-XX, risks those from companies. forward-looking in uncertainties, could the assumes Let in webcast including Capital start subject expressions. similar this listed rates its expressed update significant any filings. Please those call including volatility performance conference Many not of Ares such future to a is actual guarantee Corporation no obligation identified

core EPS in the presentation financial equity net GAAP its and stockholders' accompanying earnings core During uses most be share operations. The the to condition reconciliation results this company may quarter identified to this financial by can company performance one core discuss call. found comparable measure or the of investors EPS that because share SEC provides its Regulation financial conference measure directly to useful operation, company the such regarding for as decrease non-GAAP believes measures EPS. slide G increase of is method certain call, as per per from resulting information in it the or A

in third XXXX third-party link September and by or release addition, this this the company discussed been with company's company's warranty XX, with reconciliation has respect derived this X-K. from independently relating earnings verified companies, morning the SEC filed no earnings found the presentation the section presentation release investor available may earnings our sources and Certain of homepage on website information representation Corporations information. be presentation, to also The company's resources be portfolio on this including the to of website. was accordingly, Ares Form can on In the also quarter the QX-XX in information measures these not at on www.arescapitalcorp.com clicking found ended XX-Q on website. earnings and Capital are makes of

Kipp DeVeer

morning, and Smith; our third co-Presidents our another provide Chief with and [Technical Difficulty] Financial COVID. our believe line quarter start share This will thoughts second Michael on reported Officer, $X.XX the third then results quarter given the impact and Mitch team. our some we Penny members of the consistent And earnings result strong per position. core of we highlighting and by Goldstein earnings, by on the quarter management roll company's several I from other

Our investment meaningfully net EPS portfolio. $X.XX QX driven strong of by our appreciation GAAP increased in

or share, climbed asset an most XXXX, we the increase March when per values. COVID to portfolio from registered net per impact $X.XX X% approximately Our $XX.XX, share on value since of XX, significant

by successful offerings. also During unsecured two to across $X.X further our extend we notes conditions raising on unsecured duration the market strong of of capitalized third quarter, billion liabilities the over

good billion Our continue quarter companies to make at and in available putting to active market at investments needed. in liquidity stands $X.X support position as a a end, now us then portfolio more more than

to spreads which positive loan supportive secondary stimulus, firmer appetite markets. conditions, investor now this creation market verticals our new market impact and or calendar, market improved seeking began have the management have flow. these on signs have portfolio. a issue all to business the acceleration and Observing generally value middle new growth credit deals effects are fiscal capitalize the earnings market and slower and of decline. also growth These rose of is preservation tone Businesses economic a been continuing we're are in models, to liquid focus in due With loan new of to sponsors through expected of of risk seeing of risk flowed trends post-COVID overall corporate and some terms value the recovery, than In better and and of seeing and and trends, M&A broader world. increasingly to to prices activity we an our had teams the positive from shifting on their value on deal their acquisitions a management reposition

In addition, lock in gains and summer. for a being Many this seeking to pre-COVID very from the there's and Furthermore, spring are seem pent are were that now elections. some especially actionable. to upcoming slow period foreground of transactions returning sponsors the up ahead considered demand XXXX,

increased year. deal new pipeline offer expanding to expect market versus the average clients our a seeking saw the EBITDA in the future in This lending companies and and certainty growing we trend syndicated quarter the average that during busier the compared both companies second see our companies by what with third With solutions interesting the that quarters. roughly we're third financing of of is increasing solutions One is observing that The of in these opportunity reflects size. that we twice direct tap that public is evaluating to desire quarters last would our trend the alternatives. dynamics, we're in

net activity to mentioned the driven we repayments of benefit collected term the amendments, XX% third in and believe portfolio continued improving and outset, the scale net our contractual reemergence portfolio from our prices of companies. due, in increase revolver believe in of liquidity at XX% value levels direct well-positioned we lending. to as of and Given our relationships, portfolio, the near long a growth fair we by to positions a of we the continued market improving now had portfolio extensive saw profile the the Shifting quarter, are supportive the across portfolio whole. opportunity portfolio back largely incumbency, significant secular earnings of during ARCC a and Underscoring the both back remains our stable highlights Revolver as drawing drawings to of a this overall companies. from our pre-COVID. number health interest new of amount that are the see drop We to

on companies million more see more showing middle-market $XX less to to continue a our portfolio middle-market with also companies. compared greater portfolio upper companies $XXX EBITDA lower growth compared Across earnings our to stability, as businesses companies than EBITDA. in the We or evidence and focus on that of resilient of of stable portfolio, results average million with or

improving portfolio highlights downgrades less our we than the steady of average was companies followed of Regarding greater to of that one, health cash stable than quarter, X.X businesses. The flows grade complete of weighted grades. our our believe changed the with ratio last many portfolio which is partial upgrades our versus or companies X% three to portfolio to reopening of portfolio, remain and of

they take path and For the believe in time an names, of companies We likely have see during believe do will think recovery be more will did generally every and two of more the health one COVID many this certain view strong with we recover impacted informed we are they COVID crisis. quite pre-COVID which recovery these uneven and grade perform but times. economic with reason to their largely our franchises ever-evolving that we names, we grade as to

these which further positions, sponsor supported number cushion provides confidence equity loan and validation a companies. of is capital that already received Our fact beneath by for a our future additional the of significant them the have door

our more to We now stable strong believe share of steady Given dividend a sheet, we level support balance on our declared for and Penny results. to the cash fourth for varying we it $X.XX can per continue XXXX. turn provide dividend conditions. our through investment the improving third market details earnings, outlook I'll activity, quarter a quarter over to quarterly

Penelope Roll

Thanks, Kipp, afternoon. good and

GAAP flat per quarter second from $X.XX $X.XX of of Our the for income for quarter third to quarter of per and quarter $X.XX second compares for for earnings XXXX. XXXX which third had and We for quarter for quarter quarter net of $X.XX were XXXX, XXXX. with third $X.XX, the of share the the XXXX down of $X.XX share the third the

third income offset million fair quarter some credit of the of by for the partially the per offset third X.X% unrealized gains $X.XX for includes XXXX gains of second of continuing were per per our approximately share to investments and first COVID-XX of tightening end gains were realized $X.XX reflects value. of pandemic. of investments GAAP share the the on in per and XXXX assets losses asset unrealized share, quarter in of net quarters of net for XXXX at $X.XX primarily The of Our the impact value, net spreads performance relative net unrealized net further select unrealized of unrealized The These gains total by $XXX experiencing certain increased improvement depreciation names. X% of partially net share.

quarter at portfolio of $XX.X end the total was fair Our at value billion. the

investments X.X% debt XX, respectively on weighted at September was average XXXX. other cost at XXXX, as of the yield As at total X.X% X.X% cost XX, amortized income-producing amortized yield the to and weighted average and X.X% compared our on securities was June and

of subordinated in Our the certificates. within an the September due well the increase XXXX, were repricing at investments. XX% yields primarily portfolio was value our total on fair in portfolio as certain existing to higher as XX, At SDLP yield floating-rate

today's had SDLP X.X%, well our remaining above of the certificates, investments of current in LIBOR an excluding Additionally, floating-rate investment LIBOR X-month rate. which XX% approximately is floor the average

discussing per of equity of unrealized $X in I asset in XX, value shift in primarily September our the quarter that second The $XX.XX billion, the billion driven earlier. increase versus gains $X.X share, net at the shareholders' asset that per was resulting third by value equity. $XX.XX XXXX At stockholders' net a of share end quarter the we mentioned XXXX. XXXX, or our let's to Now net our was of recognized

up X.XXx of at As stated to since our debt and right as million X.Xx net midpoint X.XXx the ended available range XX, unchanged remains XX. June our of September $XXX quarter, of of bond $X.X equity XX. was billion we the which leverage to of in $X with our billion, ratio from quarter successful essentially issuances the Due cash nearly by target to investment-grade liquidity X.XXx more June available than of during

Specifically, XXXX. aggregate X.XX% $X.XX we January of billion unsecured that mature notes issued an in

our was a $XXX follow friendly issued The July, as issuer September, was follow and through The our first market around the risk of today's increasingly to advantage took cost an a added was unsecured of in refinancing in debt, issued of secured we including offering that $XXX important in We history, diverse XXXX. significantly average million us debt that aggregate was lower on permanent the to million our on later principal weighted and until basis competitive clear unsecured equity sources, of capitalization which points funding issuance believe our our notes XXXX having note helping overall issuance strength XX that the single our a unsecured these and over the capital maturity, at capital. next of represent is lower component advantage capital and diverse Collectively, a any original environment reducing yield yield. largest mix than isn't complement conditions. represents in structure for

facilities, and borrowing our provides As our to capital approach were from unsecured a significant of XX% capacity maintaining unsecured to positions total structure which the credit XX, debt by of of This borrowings being us our access over-collateralization XX% resulted supported fully secured with assets over as unsecured outstanding well of available. September largely which in debt, equity.

Before our taxable undistributed conclude, income dividend. our to discuss I I want and

or per in million from $XXX income was XXXX for spillover share. $X.XX Our distribution XXXX

past, dividend goal we having we believe the meaningful supports a level spillover through our As varying conditions. and maintaining of strong times steady said market a undistributed many in of

$X.XX declared this cash regular of As Kipp quarter mentioned, a third morning share. dividend we per

dividend quarter on stockholders December payable to is XX, December of XX, XXXX, record fourth Our on XXXX.

our detail. call I our more to to quarter Now, positioning third turn will the investment Mitch portfolio in over and discuss activities

Mitch Goldstein

good Penny, Thanks, and afternoon.

typical services, market industries, of the were senior activity to team across attractive. of commercial new transactions. dynamics, and $XXX companies. transactions we non-cyclical of originated services, and the expanding new of With us newly are it's commitments work be quarter M&A finding on the borrowers. XX% over for issued Consistent focus secured our the favorable to the life competitive commitments two-thirds for issued XX% commitments investment incumbent million investments with During and our science were to software, healthcare XX

quarter in opportunities the loans first-lien retrieved commitments before this market higher XXXX. loans of see COVID the than the XXX new about on full originated as originated in nearly quarter quarter fees fees the of XXXX, crisis. from in today's basis the points For found yield quarter, were senior also the third structuring our last back in higher first senior first we We've compelling the senior XX% loan quarter than

able were with levels. we more Importantly, returns to leverage achieve conservative these

in For at a we the loans senior in existed a than XXXX. half senior the example, the third had leverage our originated turn loan of lower end quarter portfolio of

any lending Going in environment favorable, forward, as maintaining terms remains activity we focused attractive it to to differentiator fair the the and different investment an value unlikely which remain only aggregate set opportunity includes wider which company. of a sheet to a tightened a companies the single year, we impact M&A our Shifting this position balance risk management, performance is at as standards the market of performance believe creating a of competitive material today is portfolio; our of have portfolio, XXX is expect We while to banks highly remain hold have diversified X.X%. greater with this underscores and average invest. in diversity on on

investment significant believe and also believe platform. weighted with origination our percentage with value diverse average we anticipate strength that, to has highlights in more loan our dividend. our that low income, portfolio protection. in value a We loan it portfolio portfolio Furthermore, the The across our of our supports XXs, stability we the

portfolio also cash industries We our resilient is flow that on believe defensive. high and free is non-cyclical which focused

quarter. better the our company companies than X.X% and performance upper million to earnings financial and cost average new quarters, these Kipp are with one is corporate cost our X.X% X.X% EBITDA during As or future This rate; increase last experiencing EBITDA value, to where we to non-accrual quarter, today, to on Based non-accrual may modest believe levels recovering net as companies fair added non-accruals portfolio at and value of levels. from at could improve on our X.X% are third focus as fair in to Shifting markets. in benefiting stated at the $XXX a over middle-market We our growth. quarter non-accrual. with our at stabilize that healthy third compared was resulted

I brief turn through $XXX closing the new investment activity. call we a of Kipp remarks, commitments me back quarter some for our million were made to October on before October X, investment From totaling which million, over let XXXX, update Now, post provide XX, $XXX funded.

Note our backlog at sell investments to may As call may I'll roughly And we $X.X our that of pipeline that, Kipp. approvals that subject post-closing. October collectively. backlog of are not back contains XX, the a close stood and these billion to and turn investments still or portion over and with documentation

Kipp DeVeer

COVID given and in our names focus. our impacted is the during and improving the activity heading another Thanks time. including risk performance, it to we're Managing significant a sheets of in and lot, strong liquidity. growth into we did consistent quarter portfolio net take summary, In financial delivered year-end, advantage we Mitch. value asset remain well-positioned our utmost market strong mitigating believe a and that and We balance challenging will

earnings this However, ever prepared situations likely if health line better longer remind will Capital stabilizing, strong and improve remarks. let extra stronger or That have concludes effort we the and to net and profile recovery believe that has competitive confident our third even liquidity leveraged asset quarter everyone Ares levels. than is today emerge modestly to feel our for the uneven remain To them we portfolio company we've expected, happy under identified require this and and conclude, position that that control. we in before. is our from the from financial be that the We'd a could has me are takes needed support companies. that a we questions. open Ultimately, and than core values company crisis

Operator

come [Operator Instructions] from Our will question Jefferies. Hecht John with first

JohnHecht

trends transitioning portfolio from model. how internally portfolio do thinking you going That it thanks an talked and a you how as the about growth about pick guys, on just I a seems a there's very in Morning, companies those good opportunity like I business perspective, it's is either like lot market optimistic guess much. you'll seems economic at but uncertainty this a the unravel might or your and more Kipp, question invest and still there guess be balance opportunity, time quarter. about constructive, year. uncertainties you up bit next same the may more of pipeline where Congratulations seemed at is, time? opportunities guys same little

KippDeVeer

it's me John, Can Kipp. you Hey, okay? hear

JohnHecht

I can. Thanks.

KippDeVeer

Good, what both tell think little the seven hard risk. I about it's more would to managing optimistic. a you, and It's every thinking not ago. internally we're business, bit talking question. a am I good months versus investing day about new That's I obviously be

think the more the and think portfolio, and are negative there I we I the are positives more happening more prepared migration. of a what's and much don't lot feel around that any control the situations we certainty that have challenging. see we have we understanding we in mentioned remarks

in of we extra As the think need attention. we've mentioned we the our around arms past, situations that kind have

picked In comments not of going it's much forward, a I around really to environment. terms in up was optimism said, but and a getting I'd lot activity done. what say, I there It's of deals more July new busier substantially. through much some too layout tried our constructive pipelines

to so am speak, here. uneven, busier I this I definitely to more I to So in as some so and out and I optimistic. maybe better prepared from than recovery But say lot wouldn't remarks quarters that, going be a but it's think I I that look, expected mentioned forward, gunning, all the and be running as and we're and potentially we're with having more busier is going even optimistic continued good think on we look longer some earnings

JohnHecht

of of do guys be can gaining stated some any part of in Obviously, Then also market but That's you're might market thanks. just or there right, tied that of maybe quarters materially how is few able in categories awareness factors? of increased terms has you to pulling the things average to sense helpful. that is the All market other you in the that company competitive over size share, that back where past you certain and participate. banks

KippDeVeer

all of I think it's that.

think these. become I deals, it's capable of we've to larger and people larger that as we're done obvious doing

last even the the syndicated liquidity. we're private market over than ones You've banks trying buy of active seen in liquid seeing We're still transactions. transactions for they're growth acceptance credit in that to but years, just right? private think really really speak, the active, five good larger deals More versus create markets, I they're have to on focused to so investors, securities so that

banks others transactions. know you of so a know, part on have part, lot continue of of and on in it's liquidity our aftermarket to direct support I the in the doesn't deal think preference As and just a on lending to companies part a the billion-dollar larger

I that would I desire last think willing to that we look, we've find markets the think my proven in brings and able, are. a definitely point uncertainty partners and are be,

So leads the going deals uncertainty that encounter probably large we only have continued private think I more here, to to forward.

JohnHecht

All Thanks much. very that'll help. right,

KippDeVeer

Thanks a lot, John.

Operator

with from securities. comes Finian Fargo question next Our Wells O'Shea

FinianO'Shea

Hi, good afternoon.

is, expect secured or impressively. referenced to and from time at of financed assuming elevated strategy? XX% think would take if any Kipp that to that drive given by you've suppose levels the we balance in to too a that security that risks Penny, guess grow overall want second number that part access should as or I shift been Would and your unsecured perspective, allow? or which a over that question, you able sheet much ARCC seen Is equity continue we've perspective I First now, bank financing and you by some will assets unsecured and something more not you of I are does it?

KippDeVeer

all. going a change Sure. been we've with talk make investing I'd only more same we over Penny Penny we structure for in. investing not on years well-positioned the etcetera to to but debt nuances but ourselves think SSLP our to business. little It's well of want the let positioned bit the is years our flexibility probably for the with XX-ish others comment going didn't SDLP, had that unsecured amount Hey, of We core business thanks really but liability not Hill, I'll saw have really added to couple I to isn't things uncertain and the let going the trying do. things the but they be period, so with I'm during question. is some Ivy We're into, an to do keep would. that going the then a chime at change like

PenelopeRoll

higher right that On fairly that's the for the we trying us build a now side thing always we're balance think been but do sheet to to on. important generally I is something focused most strong and

or That of when stable in the that unsecured during and laddered just Given a to little a us it they we percentage we the thinking but at run but able I opportunity QX, are don't XXXX percentage higher come we market, issue due we'll move capital may opportunity maturities out a as sources maturities, as focused structure build time. with as laddered and little an and worrying an usual, that so gave off through in and roll as those opportunistic needs to because it to increase funding way, not on go really more having continuing this reiterate about while. we time. any the till over a XXXX, come until more just is markets unsecured do probably would about bit anything trying some have strong maturities look to don't for we it in refinancing XXXX, down to of to

FinianO'Shea

want with was the deal. then post and quarter color just on It follow the Capstone. so participated? nature of BDC syndicated deal give you a Can Thanks the how I to much, just on

the revolver there Thank the color could or Any for that, would investor I a small syndicated, help? that That's provide an for first BDC commitment arranger in you. me. lien all sense, have sense? in something time. guys you think had for an you some participate did that Is

KippDeVeer

It obviously hold are hasn't talk an syndication in to how vis-à-vis what about we're and that. have buy not entirely yet but to closed some with out and hope which securities ongoing a our market so and plays it's all you appropriate intend I we sure the it what to we not deal name. understand. Probably where hold intentions plan

FinianO'Shea

Yep, understand. again. Thanks

Operator

Our next question will JP come from Morgan. with Rick Shane

RichardShane

morning, end for Good that my investment I talk XX that want and or fair of say And value the about quarter and activity is thanks question. just the post, everybody. you is taking XX, to Slide cost? non-accruals. The $XXX million exited,

PenelopeRoll

this funded It's out cost exited amount so, Sorry, can is because the help cite a therefore, basis I it's total as Penny. here. to the our we cost. that's it's that extent committed

RichardShane

Got cost XX% $XXX at we non-accruals, of non-accruals by look take down should it. at the we the When the million?

PenelopeRoll

at math, That XXX. be I fair that, had would near values the yes. were forma the exits that right a that we basis. just On pro would to the add

RichardShane

reflected sure NAB. question. was it. were assuming hear to my part of I'm actually I response part not in all about of wasn't didn't already response. pausing or That that think if Got you the Penny, I'm is this your sure.

those non-accrual? But losses $XX of on concentrated disproportionately think million, So we realized the that XX% the I in about apologize. when were were

PenelopeRoll

loss, we to moves would loss exit of remove unrealized when it then the those and something, realized were because record just an happens embedded think realized. I the we is what basis the then the cost will actually really probably to we the extent all so non-accruals there's

but event, everyone anything names have we those be were new just to fair look exit that we on that our at so, to through in or we value exchange companies, to -- we we where we concentrated often potential we those I we those into. we exchange would the restructuring have record to or upsides is show that then we make and it that take when need to we have back, do new we've loss, do securities at able of so So therefore, have that effectively, when and would some that kind basis in upside the remind as the would restructures nonaccrual. would loss opportunity that also we exchanged have history anything

RichardShane

Got it.

Okay, much. that's very helpful. you very Thank

KippDeVeer

Thanks, Rick.

Operator

Ryan from with comes Devin Securities. question next JMP Our

DevinRyan

Thanks very much. Good afternoon.

First seeing than a on question pretty credit, kind on deals here you're seen of quarter? clearly, pandemic. few a new back here, much today deals many back couple on were recovery a of spread curious into the being anticipating investments made early and in the think better relative early you've I substantial how and I'm to just quarters tightening months just the

KippDeVeer

Sure, Devin.

of I think increases, pretty NAV obviously substantial QX. back mark from the off

typically today but think could points XXX my available. probably is disagree agree of folks the widened and Others the just had we estimation basis wasn't of amount say just were I a and capital it credits We've really around leverage on or XXX lower liquid of to portfolio, with aspects upgrades lot obviously, the the when in talked the other was quality about points we're different XXX markets but yield. we underwriting in from and at performance. better and lot retracement wide documentation, more XX sort and over materially underwriting team versus downgrades uncertainty a a in a I that there improving pre-COVID basis that of referenced of and We steadily of sort I'd markets say better, being probably the thing were in better. the place. levels anyway. seen of lot to where the the would summer,

DevinRyan

deal and investment M&A pre-pandemic recovered levels just around Then that's flow. Thanks. a earlier the Very questioning kind up follow opportunities. maybe back on materially opportunities a so helpful. the Clearly Got backdrop providing over to of of lot past it's it. around few we're months,

potential some changes Sounds like the on forward outcome. just the depending election election driving tax may add pull to be

that's given Just how changes, or structural in or guys think affecting are administration. some different are or less taxes about about being a the into want to favorably areas potential to around viewed be it more whether you lean that whether for thinking industries regulations, even

KippDeVeer

of owners terms increasing the industries. election people, think is victory. whatever whether sponsors, Biden not view a I types changing so counterparty, I our be businesses, yet It's being in certainly Yes, the about, uncertain really of with activity that it may guess any of

have lot to see next and whether that'll For until things part potentially investing most things the of a industries will week, really new a part, our for types from the we lens shift. new hearing terms on years, a of the what of think begin I same we stuck companies don't happens business. we'll the so of obviously, to same thinking in If administration, start be we

DevinRyan

it leave you. Okay, great. Thank there. I'll

KippDeVeer

welcome. you're And

Operator

comes from Ryan with Lynch next Our question KBW.

RyanLynch

Thanks afternoon. questions taking for my guys. good Hey,

one on market deal comments First your on activity of was your I just have revisiting kind funnel. and the

talked -- when over you and currently, and that I in million. expect I you QX $X.X than had ago, a it $XXX see billion you you and busier backlog your You backlog, at a report about in look guys that saw guys But year felt only was about quarters to what guys QX. like

to would kind just when talk pre-COVID about Any market just at increase levels, in you up funnel were up increase kind activity you of kind backed and talking kind more helpful. of where steady of activity, the activity So of deal being looking steady seeing a or and QX, kind of today increase into magnitude ramping then from of are kind we color, deals an of of is and of QX, QX? to a kind be

KippDeVeer

that levels. this I busy. remain I think it think very characterize wouldn't at there. say will as would currently, I We're pre-COVID necessarily I

get all for up I to folks a wanted they of six done trying get combination more lockdowns things of get didn't closures done to that demand, who pent and a again during severe month period done. it's some think and that much

well about as as part the things forward question of election, it Devin's too. think I pulling

a of pull think from That'd sustainable and my past, the it's the up future little thought. it's point. hard catch bit little a I be from it's this tell of bit forward if at to

RyanLynch

just maybe better Okay. I Then up, my for Penny. it's follow

what to Can of maybe been XX% and drove new a you thought guys other in how was a had any amendments to other had said those increase drop due items? just this also quarter. this big guys big amendments this that I sustainable but going you income are about in you that income quarter. in increase You quarter more made talk be

PenelopeRoll

our what fees last related quarter. have by quarter driven and one-off portfolio about That still did is this was kind income it to one amendment was we of double activities. Yes, other other it time

these in increase. than higher would lends fees look levels environments, of to itself as it sources of one-off from know, normal a you more various As it so I at

amendment rate. the put that the making was will shouldn't be subside, fees to one-off that starts a you for of of types opportunities reduced. But the quarter run our those As then into thing more for

RyanLynch

fourth you Just of still are so activity seeing started -- in off? trail on or though, third far similar in quarter that level to that the quarter has amendment guys the

KippDeVeer

quarter. the that talked even kind We It's a this lot. slowed level. at in decrease about down It's steady of probably

amount was the that question our I will I them reasonably approach did keep the think of we be significant amendments quarter, last to think mentioned that short. we

in is it's terms be So light quarter. do into today, tell, what how hard COVID? in going to So this potentially hold level saw companies that for hold levels. at or today, it's winner it's performance you question but look much that those not and still lower of more reduced year-end steady The the QX and or will at pretty

RyanLynch

Thanks understood. and really taking questions Okay, nice quarter, guys. my for

KippDeVeer

it. Appreciate Thanks.

Operator

Our Compass next Casey comes from Alexander question with Point.

CaseyAlexander

What can incumbent backlog the of afternoon. good have you percentage -- borrowers? only guess or morning percentage Good is what I one from question.

KippDeVeer

I can accounting consistent here in team I'd our actually to go and in -- I I has mean, have look that I around I I case offhand. know Well, is don't have here through up it can if level the it. pull finance notes. see but it XX%-ish that for if it -- go typically think pretty don't see number

PenelopeRoll

around incumbent; half, -- than more over the there it's deals. is around Yes, of is it's so new estimate incumbent XX%

CaseyAlexander

not I'm sure.

You you incumbent sorry. me. then so I'm XX% just news and said than confused more incumbent, deals;

PenelopeRoll

I around misread Sorry, is incumbent, It's yes, I so -- it. new I than more XX% think sorry, new.

CaseyAlexander

you. what All was for. That's XX% So is right. new. I Thank looking

That's my question. Thank it. That's confusion. only you. the for Sorry

KippDeVeer

thanks lot Casey, Hey, a the question. for

[ph]. us next numbers we'll Sorry getting our for backwards or the take one confusing but

Operator

next America. Bank comes Hewett with question of Derek Our from

DerekHewett

Aries' structure. Good mentioned we pick since prospectively? think stabilize your level And point, was on are could given peak wind? non-accruals strong income it call up I potentially afternoon, you of at capital pick on everyone. can liquidity Do think What do is this that I thoughts the rising the that see and realize

KippDeVeer

I had I'd COVID-impacted at names. extended to and that an an it I doesn't that is for don't much that with whether one really of a six don't quarter-to-quarter, long to think to obviously And it quickly I'll do, some of elevated, like of definitely Typically, it's more pre-COVID, take I of pick. real for things of come call it's the perspective, and junior so increase natural, but shape term tend point, Certainly, these But reminder, kind how that elevated. liquidity portfolio, ago as in to From it that that will an all of drove us. it And pick recovery good part some coupon, just all amendments. recovery it it's investing create issue saw sub in I really it, activity, and that's creates the the will. the of with patient come don't started know, elevated a of it a down. happen. we of changed some to see us. level hasn't be dictate high bunch these say, want issue debt remain the of single-digits, And, what the preferred, period amendment can as in tier the with news for we take incumbents, to of we've it a But you for because view increase, think time, X% the around is, its the months XX% or allow

DerekHewett

then what And other a the great. significant quarter-over-quarter? cost basis driving in the one yield housekeeping question, increase on was SDLP Okay,

KippDeVeer

fair value the about talking you Are going you're Or up? saying…

DerekHewett

just No, points quarter-over-quarter yield, I on up think XX about a actual basis the basis. was it

PenelopeRoll

take can one. I Kipp, that

you at was that and to conservative performance been to of the the amendments better into underlying look you than XX.X%, coming QX portfolio. maybe a COVID, QX at led it if perform, some to also at little it's then But in in the had reduced that If we rebound the looked around and about yields XX.X%; yield underlying companies. some higher We've expected. look they just way in year-end, on performance, at the our part,

flows improved comfortable SDLP. more So with we bringing more if feel you that couple back rates, yield and cash that then toward year-end on the

for QX XX.XX% ended ahead. we we're So at

KippDeVeer

just line Yes. think And it's with the existing I in portfolio.

of I what know pricing, mean, all some You additional amendments, some that.

DerekHewett

much, you Thank great. very Okay, everyone.

Operator

Kenneth Capital next RBC with Lee from question Markets. Our comes

KennethLee

taking for question. thanks Hi, my

comments range? what the the could share and the bring going just seeing busier of remarks broadly, to potentially upper you forward; wondering the either if on thoughts prepared quarters perhaps the could targeted on factors lower or Given trend any more leverage in updated could And leverage end the how Thanks. near-term?

KippDeVeer

lot facilities mean, hopefully repayments that. to I same asset comfortable We're opportunities. a that I at you've or some But grow going we to in still X.X; past, the think we'll evaluate a and that from the get kind don't we're the times, to heard, X.XX think growth; But see comment; support obviously bit we with leverage we X.XX the we'll And on sort attractive of I up that the it. it. seeing of the and and the still whole like does we're think liquidity. said feel investment and have I think when down we're we've ratio days, all draw because so liabilities what Sure. other credit these we bunch think little beyond company probably that's how operates the -- we way seeing of see have X.X we of eking is a company here are

So natural environment. a a counterbalance investment to there's busier

range here. for little in So still while like be at this that we'll feel a point, we X to X.X

Kenneth Lee

Thank Right. have. much. I very all That's you

Operator

next Raymond question from James. with And Robert comes Dodd our

RobertDodd

Hi, the If quarter. you they XX% any it's and relative this down the you briefly, Kipp, and give last? on more materiality So if modest is were on the of count, improvement. those I which color in a to quarter XX can obviously said big go back seriousness, will? what congrats was you amendments than it if Can they down amendments? Were down

KippDeVeer

most the would we an I April, were that that encountered answer. that interesting That's the May. to ones It's question. March, say, issues hard into we were serious one maybe even we a felt and in addressing

sense. look done So generalization, think the less of back But as were and have I'd that that I variety. would quarter a that but serious the list, my amendments this the at would go got to be

RobertDodd

from XXX to at is be this pre-COVID And better one? that obviously fact businesses the the larger The in mean you And now? what to follow any it, to wider points call could type that color. more it on larger businesses even is appreciate XX I XXX give it, given going general, Obviously, that about you're and I is -- like-for-like going the spreads offset a lower XX you Or color to are going applies for basis color levels? normally by, separate blended your effectively to businesses spreads, presume the forward. EBITDA One on looking on same wider But spreads that that Got that asset. larger up, talked at being docs, are right pipeline of etcetera, spread you on total any the are? much businesses, changes etcetera. carry spreads

KippDeVeer

The hundreds lists, the weighted about of I generalization, across it, it about you can capital think companies average structure. think across

flow, some more little bit when million you a flows unbelievable $XXX of I looking can reality and of a the drive And interesting, million the competition lower of for and spot the staunch, think a we come a materially market think like I little pricing market, the sweet down. competition or traditional a up, checks, to. they deal million your of of a at we'll $X because folks value terms not there's honest, $XX pricing lot second above as you, complete go more deal $XXX be really to I little think to write is, The feel what This see we're think bit probably companies days. The market. able these lot frankly, which in point a to in these But a billion, is is larger middle larger actually is little that middle lower is I a can drive same tell the offers deal, lesser, would and you lesser. deal a companies. capital in line the better and solution a bit than can middle folks you lot people

returns too, So be would EBITDA increasing the deals. those I We don't our view terms size better deals, today. enemy look getting in blown and than to as we these like. getting risk we an actually may there by adjusted we're sometimes think be what play the returns I away smaller

capital pricing. a And can't we're $XXX getting the smaller point lose you're financing of million surprised seems and we EBITDA same wow, always a these $XX for on days. one, compete - be the and we and Your when supposed to right we deals I can go cost but it with as bit you're believe others million company, they saying company in returns, borrow companies, can premium is, is - which to these tend

doesn't stick and of it lot us, to sense we're For make we'll what a doing.

RobertDodd

lien I in a risk so Clearly, in It [indiscernible] market on the in second lien doing the you're higher pleased your is non-accruals when lower you Thanks. have return and the way appreciate to it industry. that. get the a coupon segment; get show better does up second answer.

Operator

with Kotowski [Operator Oppenheimer. Instructions] Christoph from Our next come will question

ChristophKotowski

about through Good to your names. back peel the the non-accruals, on afternoon and the chunkier optimism I'm onion thanks. bigger, just relative trying looking

function -- to have on COVID is based just these least companies that these the are gas, two chunky the see COVID. couple at those been And partially movie of by function to them and obviously dental we're ones. partially, some a would centers, in world a lot restaurants, of it's that wondering, a were bigger, impacted oil company, Or to, able see that You companies in? it is I'm opened found optimism world? a production easy how in the fact way have your the

KippDeVeer

You're talking or the… are about rest non-accruals, companies of that existing the

ChristophKotowski

what Yes, existing your wondering about, I That's was basis of that the optimism? non-accruals. your was

KippDeVeer

a But, and not them. think a [ph] will Generally, darn providing I of part, near that yes, And in COVID. all pretty through operating good in most of into are equity how some of for think, the we all potentially the the non-accruals companies term, figured cities for concessions they existing path if to to there tier-point those combination operate. impacted most, businesses, be they're yes, recovery by out coming

mind, I think it's too it's And So, ones around non-accrual at list, being think pretty you on I'm reasonably I the our existing portfolio, I grade the because and being, about when small the twos list, optimistic optimistic when look my April. definitely But them prepared in the the where control, under we remarks, think than ring think have And a that we that as I was lot fenced this so more at are. understand point, non-accruals. talked I and issues we mentioned in in you in optimistic we've right?

ChristophKotowski

Alright, that's you. for me. it Thank

KippDeVeer

You're welcome.

Operator

the Kipp and closing our to question for session, call over answer to I like This back remarks. any turn and would DeVeer concludes

Kipp DeVeer

thanks can hoping the sign all We'll person back wishing we now. and well, questions. beyond off everybody of get Thanks. together for But all one days. these Nothing in

Operator

Ladies call this our concludes and gentlemen, today. for conference

Xpm any hour time part available today's X-XXX-XXX-XXXX. call callers archived be domestic to at XXX-XXX-XXXX missed an call, by end the one approximately Eastern of call and callers you through XXXX, If November XX, replay of the the to of dialling after dialling will international by

of Ares available number located of on be Investor section For all replays, the will link An also reference replay please conference webcast archived website. XXXXXXXX. the homepage Resources on Capital's

John Stilmar	MD, Investor Relations
Kipp DeVeer	Chief Executive Officer & Director
Penelope Roll	Chief Financial Officer
Mitch Goldstein	Co-President
John Hecht	Jefferies
Finian O'Shea	Wells Fargo Securities
Richard Shane	JPMorgan Chase & Co.
Devin Ryan	JMP Securities
Ryan Lynch	KBW
Casey Alexander	Compass Point
Derek Hewett	Bank of America
Kenneth Lee	RBC Capital Markets
Robert Dodd	Raymond James
Christoph Kotowski	Oppenheimer

Ares Capital (ARCC) 27 Oct 202020 Q3 Earnings call transcript